These men who head
Bank of Baroda,
Vijaya Bank and
Dena Bank may face many a storm and choppy waters in a journey that could in a few years make them either look like Christopher Columbus who found the new world, or land in no man’s land like Robinson Crusoe.
When the numbers are put out on an Excel sheet, the easiest way to
analytical glory, the merged entity is the second-largest by assets. But
life on the integration ground is the opposite of what appears on the
Microsoft Excel file. Mergers are probably the most glamorous in the
world of business, but history is as much about bitter divorces like
Chrysler-Daimler as they are about romantic rides like Procter &
Gamble’s with Gillette.
As with most marriage proposals, there’s optimism about this too. “I look at the merger positively,” says Aditya Puri,
chief executive officer of HDFC Bank, the most valuable lender. “I
think it will lead to cost, product and technology efficiencies. It is
easier to manage.”
MAMMOTH TASK
The task at hand for the three men is of monstrous proposition. In
any merger, the biggest challenge is that of personnel. While in the
private sector, the easiest action for the management is to lay off
people to derive cost savings, that option does not exist for the three
CEOs. There are 90,000 staff whose future has to be protected and
concerns addressed.
There are multiple data centres that handle more than 10 crore
customers across three banks that need to converge. For the moment, the
three banks operate on three different technology platforms which appear
to be easy to integrate but difficult to execute. “Technology
integration in theory is easy to achieve but in practice it will require
a lot of hard work like just getting a new account code for all
customers and communicating that will not be a simple thing,” says
Jayakumar.
“Replacement of cheque books will not be simple. RTGS, NEFT
details and net banking interface will take time to change.” The merged
entity will have about 9,489 domestic branches which looks like a great
leap forward, but of this nearly 10%, or 941, branches are in the same
pin code, which needs to be reduced without much staff resentment.
THE SYNERGIES
One of oddities of Indian banking was a single owner, the
government, dominated nearly 80% of the industry which is near monopoly,
but the problem was it was spread over 21 different entities that
neutralised the advantages, the dominance would have brought it. “Why do
you need so many banks with the same parentage competing against each
other, killing each other in terms of under cutting etc.?’’ says Ravneet
Gill, CEO, Deutsche Bank, India.
Because of the single owner, the incentive for different entities to
compete strongly and innovate did not exist either. Whatever each bank
achieved, it was more an enterprise of individuals rather than any
institutional vision. While the mixture of personnel with different
cultures from Dena, Vijaya and Baroda could cause some friction, the
advantages that would flow are many.
“It will give them more job opportunities so that there is no
shortage,” says HDFC Bank’s Puri. “Given the retirement that is coming,
there is going to be a shortage of manpower. If you merge these three,
then you don’t have to have layoffs and it automatically brings in cost
efficiency.” Handling of staff would determine whether they become an
asset or a liability, but the existence of so many overlapping branches
like BoB’s first Mumbai branch in Horniman Circle, a century old, that
sits opposite sprawling Dena’s.
These could be merged and allocate excess staff to suburbs, probably
closer home. In Maharashtra alone, the merged entity’s branch network
would rise by 400 to 950. Cost-cutting could be huge. In fact, BoB has
already proven by reducing the number of auditors to just about 30 from
nearly 1,400. In the merged entity, the procurement of technology,
telecommunication could bring down costs.
“We just need to ensure these synergies get captured,” says
Jayakumar. “We have to have a clear plan on how to do it but also some
patience. There may be short-term pain but the long-term gains will not
take far long to manifest themselves.” State Bank of India’s merger of
five associates with itself and ING Vysya’s merger with Kotak Mahindra
Bank are recent examples that these three could draw from.
While the size of integration of SBI associates was mammoth — almost
merging ICICI Bank with SBI — the combination of ING Vysya with Kotak
shows the challenges. A top Kotak executive involved with the
integration then, Mohan Shenoi described the process best. “The merger
process, according to me, was like servicing and upgrading an aircraft
while it is flying,” Shenoi told ET in an interview last year. “So, we
had to ensure that business as usual should go on, not on one side but
on both sides.”
Kotak faced issues of staff integration and had to create a bad bank
to dispose off the defaulted loans. It also had to take a knock on
pension provisions.
DIFFERENT STROKES
It is a merger of banks from the same stable, but there are
strengths and weaknesses that would play out and complicate as well. “A
lot is riding on the success of this merger because a failure will mean
that this whole consolidation process will be put on the back burner,”
said Gopal Jain, managing partner at private equity fund Gaja Capital,
which was one of the earliest backers of RBL Bank.
Over the past three years, Jayakumar along with former chairman Ravi
Venkatesan had initiated a lot of changes, including lateral hire,
changes to human resources policies that prioritise merit. Its
leadership programme focused on enabling technology absorption along
with refurbishment of branches into paperless offices and ending the
steel cupboard culture are a welcome relief to both staff and customers.
“BoB has gone through a transformation,” says Vikramaditya Singh
Khichi, executive director at BoB and a former
Dena Bank executive. “The
systems and procedures have been set to lay out a path going forward.
This integration part is now going to move in only the direction BoB is
moving.” Vijaya and Dena are small and saddled with bad loans, but they
come with strengths too. Vijaya is retail focused and profitable and was
the only state-run bank that paid dividends last fiscal.
